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Consumer confidence strengthens but not enough to suggest economic recovery

by Zongwei Li
Feb 26, 2013


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Zongwei Li/MEDILL

U.S. Consumer Confidence Index climbed in February, ending three months of consecutive drops.

Americans’ confidence in the economy strengthened more than expected in February, ending three months of consecutive drops. However the numbers, which suggest eased worries about a fiscal cliff, are far from a recovery sign to economists.

The Conference Board Consumer Confidence Index now stands at 69.6, up from revised 58.4 in January. The latest number from the New-York based private research group today topped market estimates of 62 and is the highest reading since November.

“Consumer Confidence rebounded in February as the shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated,” Lynn Franco, director of Economic Indicators at The Conference Board, said in a release.

Economists believe shoppers are adjusting to an increase in payroll taxes in connection with Social Security and Medicare. Congress allowed a temporary cut on the taxes to expire in January, reducing Americans’ earnings by 2 percent and dragging consumers’ confidence to the lowest level in more than a year. The gasoline price hike, another negative impact on January’s numbers, seem to be better received this month.

Rising home values might also help relieve concerns over tax and pump increase.

Despite the jump the index is still well below 90, the number that suggests a healthy economy.

“It’s an improvement from the deep hole we dug ourselves into at the end of last year, and it’s still not an impressively strong reading,” said Robert Brusca, chief economist with Fact and Opinion Economics.

Looking ahead the consumer expectations index, a gauge that measure expectations for economic activity over the next six months, climbed to 73.8 from 59.9 surveyed in January.

Brusca, however, said a big part of the fiscal cliff still exists in the form of sequestration, a series of proposed across-the-board cuts to government agencies. Some economists believe the cuts will lead to hundreds of thousands of job losses unless the government come up with new solutions before they go into effect on March 1.

“If the president is serious about letting sequestration come into being, if he’s serious about drawing a line in the sand and trying to force the republicans to agree to more tax revenues before he will agree to modify the sequestration provisions, then I think it may be that the economy is going to get worse before it’s going to get better,” Brusca said.